Powell: Fed could lower forecast from two rate hikes in 2019

Federal Reserve Chairman Jerome Powell suggested Thursday the central bank is likely to lower its forecast from two interest rate hikes this year amid volatile financial markets and a slowing U.S. and global economy.

“During the year, we’ll look at (the economy) and tighter financial conditions and we’ll also lower our rate path” and monitor the effects of that on the economy and markets, Powell said in an interview at the Economic Club of Washington D.C. He stressed the Fed has made no decisions about the pace of rate increases this year and will respond to the economy as it evolves, saying officials will be "flexible."

Powell’s remarks largely echoed his assertion at a forum in Atlanta last week that the Fed “will be patient” as it weighs future rate hikes – a message that has helped drive stocks higher. On Thursday, he appeared to more explicitly indicate that Fed policymakers could lower their rate-hike forecast if markets continue to be turbulent and the economy slows more than anticipated.

Fed policymakers’ estimate of two rate increases this year “was contingent on a really strong outlook for 2018,” Powell said. While he said that may still happen, he added, “We can be patient and wait and see what does evolve,” noting that inflation has been modest.

Fed fund futures markets have been predicting the Fed won’t raise rates at all this year.

The stock market plunged in mid-December after the Fed raised its key interest rate for a fourth time in 2018 and forecast the two additional hikes this year. Although that was a downgrade from its prior projection of three increases, markets expected the Fed to take more of a wait-and-see approach to future moves in light of slowing global growth, the U.S. trade war with China, market turbulence and stable inflation.

Powell also reiterated Thursday that he and other Fed policymakers not affected by President Trump’s repeated criticism of the Fed increases, which Trump says have slowed the economy, undercutting his promises for faster growth.

“We don’t get distracted by other things,” Powell said. “We don’t take political factors into consideration.” The Fed is an independent agency and its insulation from political pressure has underpinned its credibility and influence.

However, Powell said he would meet with Trump if invited, noting that previous Fed chiefs occasionally have met with U.S. presidents

“I’m not aware of anyone not accepting” and offered to meet with a president, he said.

Powell’s comments on:

The economy: “We see continued momentum,” Powell said, adding unemployment is near a 50-year low and wages are rising. “But we see financial markets express views of concern about downside risk.” He added he doesn’t seem elevated risk of recession this year.

The partial government shutdown: A short-term closure that’s resolved shortly will likely have no effect, he said. But he added, “If we have an extended shutdown, I would think that would show up in the (economic) data pretty clearly.”

The US-China trade war: “I don’t think the tariffs on either side have had a mark… on either the Chinese economy or the US economy,” he said.

The recent plunge in oil prices: Powell acknowledged a drop in prices is now less of a clear benefit for the economy because the U.S. has become the world’s top oil producer, partly offsetting lower gasoline prices for consumers. Still, he said, “There’s still a mild benefit in the aggregate from lower oil prices.”